Vijay Mallya’s road to recover ‘excess amount’ may be bumpy

Does the government owe any money to Vijay Mallya, and if so, how much? The answer to the question is something that Mallya wants to find out. On February 3, Mallya filed a writ petition in the High Court of Karnataka against recovery officer JMF Asset Reconstruction; and 10 public sector banks (PSBs), including Punjab National Bank, Bank of Baroda, IDBI, Union Bank of India and the State Bank of India, which had led the lenders’ consortium during recovery proceedings.

In the petition, the fugitive businessman has sought that the high court direct the banks and the asset reconstruction company (ARC) to provide a statement of accounts of all the recoveries made, including interest, since April 2017 (when the Debt Recovery Tribunal or DRT issued an amended recovery certificate) from him and his erstwhile companies including United Breweries Holdings Ltd (UBHL, now in liquidation). Further, he has also sought details pertaining to ownership of the assets that have been sold to recover the amount, and those assets that have been identified by banks as belonging to him and are yet to be auctioned. Additionally, Mallya has also sought that the high court grant an interim stay order against banks from making any further sales of properties with the banks and belonging to him.

Mallya’s move follows a statement by Finance Minister Nirmala Sitharaman in Parliament last December. The finance minister, while highlighting the Enforcement Directorate’s success in recovering assets from high-profile offenders, had informed the Lok Sabha that Rs 14,131.6 crore had been recovered by PSBs from the sale of assets belonging to fugitive businessman Vijay Mallya.

These assets had been seized under the Prevention of Money Laundering Act (PMLA). Mallya says the recovery stated by the government in discharge of the sums due to banks now stands in excess, with details on how much each of the banks recovered against their dues yet to be known.

In 2013, to recover money lent to Kingfisher Airlines, Banks had taken the airline and other entities belonging to Mallya that had provided guarantees to the DRT in Bengaluru. In January 2017, the DRT had allowed recovery of Rs 6,203.35 crore from UBHL, M/s Kingfisher Airlines Limited, Vijay Mallya and KFIL companies, and held them jointly and severally liable to pay the banks the amount with interest @ 11.5% per annum. According to Arjun Gupta, Leader, International Dispute Resolution and Investigations Practice at law firm Nishith Desai Associates, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, lenders are mandated to use proceeds from the sale first towards cost, charges and expenses incurred by the lender, and second towards the discharge of dues owed to the lender, with the residue being refunded to the borrower. “If the refund is not made automatically, then the borrower has the ability to approach the DRT or also file a writ petition before the high court seeking directions to the bank for release of refund along with interest on the refund amount for the period post realisation of the proceeds by the lender till when the surplus is released in favour of the borrower,” he explains.

In fact, in the case of ED v/s Kingfisher Airlines under PMLA, the Greater Bombay CBI special judge, in an order dated May 2021, had allowed properties including immovable properties, bank deposits, unpledged shares and pledged shares worth Rs 4,235 crore belonging to Mallya and his entities to be restored to the banks and proceed with the recovery. “The principle is that a creditor cannot be permitted to unjustly enrich itself. However, the quantum of amount due is often litigated for an extended period,” says Prateek Kumar, Partner at law firm Khaitan & Co. He adds that while there are no set timelines, courts usually decide such matters in a time-bound manner.

But what could complicate Mallya’s legal battle is his ‘fugitive’ tag and the pending non-bailable warrants (NBW) against him from various courts. In January 2019, Mallya was declared a fugitive economic offender under the Fugitive Economic Offenders Act given that arrest warrants had been issued against him, and he had left India. Chandrasekaran R, Partner at law firm Fox Mandal & Associates, points out that such rights to claim sums can be frozen, with the assets of economic offenders being confiscated. However, the other view is that while there is no statutory legislation or judicial precedent diminishing the rights of a fugitive to seek recovery of excess amounts recovered by the banks/creditors. “One fact that courts keep in mind is that anyone who seeks discretionary relief from courts must come with clean hands,” says Kumar of Khaitan & Co.

The High Court of Karnataka has issued notices to the financial institutions in Mallya’s fresh petition, and the court is now expected to hear the case on February 19.